Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nominal income through collective bargaining. Could the union statement be correct? a. No, because real income may rise if price increases are proportionately greater than the increases in nominal income. b. Yes, because real income may fall if price increases are proportionately smaller than the increases in nominal income. c. Yes, because real income may fall if price increases are proportionately greater than the increases in nominal income. d. No, because real income may rise if price increases are proportionately greater than declines in nominal income.

Nominal income is earning or income that has not to be adjusted for inflation. Inflation is a general increase in prices. Inflation reduces the purchases power of a currency. If the rate of inflation is higher than the rate of growth in incomes, workers will experience a decline in incomes.

For teachers to have an increase in real income, the rate of salary increment must be higher than the rate of inflation. Should the rate of salary increment be lower than rate at which prices are increasing, teachers will have reduced standards of living.